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3 Reasons CBS' Stock Could Rise

CBS stock is down, but the company has actions in place that could boost the business and also the stock.

CBS Corp.(NYSE:CBS)stock went up during Q4 2013 and Q1 of this year, but has since come back down to about where it was a year ago. In early August the company reported Q2 earnings of $0.78 per share that were up 4% year over year and higher than analyst expectations. The company followed that with strong guidance for continued year-over-year earnings increases for the rest of the year. The uncertainties that have pushed this stock back down recently may have caused a buying opportunity for those paying close attention to the following three reasons that this stock may rise again. There's no guarantee the stock will go up, but let's dig in on three reasons it could.

1. CBS is becoming a leading content creatorCBS Corp. is a TV network, meaning advertising was its main revenue generator for most of its history. However, the advertising segment of the company has seen headwinds recently with lowered revenues due to increased low-cost advertising competition.

Now, the company is actively transforming itself into more of a "content creation" company with less focus on advertising while airing other companies' content, and more focus on creating award-winning series. Financially, this move to content creation could mean big increases in the company's bottom line as the company fully owns the rights to its created content instead of rights to air content by other companies.

This will only work if the company can actually create great content, which seems to be working well so far. As the company continues to win awards for its own content, investors will see that this transformation is working and that the company is proving itself as a content-creator, not just an advertiser. CBS has ownership in more than 70% of its total fall lineup, including top-rated TV series like NCIS and The Big Bang Theory. The company leads all broadcast networks with 47 Emmy nominations this year, and was major winner at the most recent Emmy awards at the end of September.

With more than 100 million viewers per week, CBS TV is proving that content is doing well for CBS. Image source: CBS

2. Increasingly lucrative international dealsCBS is signing major deals with international networks to carry these shows it's creating, often signing deals before the show is even released. By the time a show is set to release, it already has international deals set up, and it can mean a substantial amount of revenue per episode. According to CBS management during the earnings conference call, "The numbers are truly extraordinary with rarely a number being below $2 million per episode for a brand-new drama and north of $3 million for some of the more established hits."

Continuing on the trend of more content creation driving increased revenues, as the company continues to develop award-winning series, these international deals will keep coming and could be more and more lucrative. For example, with NCIS: New Orleans, which had a large international deal in place before it aired in the U.S., the company expects as much as $5 million in revenue per episode, not including advertising revenue to come when it does air. These international revenues could go a long way in helping the company to win on its content creation plan, and will make the company much stronger in the coming years than it was in its advertising past.

3. Lowered advertising revenue is no longer a surpriseCBS' Q2 earnings were positive and the company reported year-over-year revenue growth. However, results were not as positive as analysts were hoping for, missing earnings growth expectations. Furthermore those results were considerably lower than that of competitors Disney(NYSE:DIS) and Time Warner(NYSE:TWX.DL)at 24% and 29% earnings growth year over year, respectively.

The cause of the less-than-expected revenues was mainly attributed to the lowered advertising revenues as the company struggles to compete with other, lower-cost advertising options. The same was the case in Q1, but by Q3 analysts should be expecting advertising to be a fading revenue generator for CBS. So this reason that the stock price has been down in Q2 and so far in Q3 will likely be much less of an issue when Q3 is reported.

With lowered advertising revenues now in consideration, and more revenue to come from better content creation and international deals, CBS is more likely to meet or exceed revenue expectations in Q3 and Q4, which could help the stock price to rise back toward its Q1 high near $67 as investors see CBS proving its future as a company with much more than just advertising offerings.

Foolish final watchWhile CBS' most recently reported earnings results may not have been as impressive as they could have been, they were still good results and the company has what looks like a strong plan for future growth. With growth in content creation, lucrative international deals, and furthered non-reliance on advertising, CBS looks like it's making the right moves to keep increasing earnings further going forward and that could lead to a rise in the stock's price.